The International Accounting Standards Board (IASB) has published working examples on ways in which businesses can account for climate-related commitments and other uncertainties across several international accounting standards.
The document, developed in collaboration with members of the International Sustainability Standards Board (ISSB), comes in response to strong demand from investors, who have complained that companies often fail to back up climate-related statements with hard numbers in their accounts.
The consultation document, Climate-related and other uncertainties in the financial statements, contains eight examples of how companies can apply IFRS Accounting Standards to improve how they communicate information about climate-related risks.
Its publication comes after a vote was passed by the IASB in April to launch the public consultation, with the aim of ensuring the IASB and ISSB are better aligned in order to give investors sufficient basis for deciding whether to invest in a company.
The IASB’s proposed examples aim to:
- improve transparency of information in financial statements;
- strengthen the connection between financial statements and other parts of a company’s reporting, such as sustainability disclosures.
Andreas Barckow, chair of the IASB, said: “Investors have clearly communicated that they factor climate-related risks into their decision-making process. Although our accounting standards already address such risks, we have identified a need for illustrative examples to improve the application of these requirements.
“Our proposed examples aim to provide this clarity, helping companies better communicate in their financial statements how climate-related and other uncertainties affect their financial position and performance.”
Project scope
The issue of accounting for climate-related commitments has come into sharp focus in recent years amid the increasing amount of sustainability reporting and pledges from companies to transition to lower-carbon operations.
Proposed areas of focus include materiality judgements, disclosures about assumptions and estimation uncertainties, and disaggregation of information.
One of the examples deals specifically with the fact pattern of a petrochemicals company that has “plant decommissioning and site restoration obligations” but has not disclosed the cost of settling those obligations.
The guide stresses that even where provisions might seem immaterial, transparent disclosure of uncertainties and assumptions surrounding these liabilities is important information for investors so that they can understand what future costs the company may face.
The guide will not, however, tackle reporting on climate-related opportunities as of yet.
IASB member Bruce Mackenzie had previously urged the board to be cautious about covering too much ground too quickly, adding that it was important to let the new field of sustainability reporting develop naturally.
He also warned that expanding the scope of the project too quickly could have several negative consequences.
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